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The United States military budget accounts for over 40% of the world’s annual military expenditures and, at around $700 billion per year, more than 20% of the federal budget. The Federal government wants to curb that spending as part of deficit reduction.

Last week’s deficit deal calls for up to $350 billion in cuts over the next decade on the departments of Defense, State, Homeland Security and Veterans Affairs, among others. And, if the debt “super-committee” fails to reach a deal on $1.2 trillion in budget cuts, it will automatically trigger an additional $500 billion in cuts over the next decade.

Growing obligations: Much like other public sector groups, the Pentagon has growing liabilities coming from pension and medical insurance plans. It’s “very much a microcosm” of the problems facing the country, says Glain. The Pentagon’s liability for civilian employees is currently $60 billion and the “rate of growth is enormous,” says Glain. The figure was $15 billion a decade ago.

Accounting Problems: You think Enron’s accounting was troubled? The Pentagon has very little accountability when it comes to its books. Since first submitting financial accounts in 1991, the Pentagon “has been unable to account for trillions of dollars, well over almost $10 trillion by my own account,” says Glain. Conspiracy theorists suggest this is CIA money being laundered through the Pentagon, a claim Glain has some sympathy for.

Ending the Wars: Ending operations in Iraq and Afghanistan will instantly save the defense department $180 billion per year. According to Joseph Stiglitz the wars have cost the government $3 trillion and counting.

Thursday’s report on May pending home sales was down 30% from the prior month and nearly 16% vs. a year ago.

The market weakness spans the country. Sales in the Northeast, Midwest and South fell more than 30%, the bright spot, the West, only fell 21%.The news comes after last week’s record low new home sales in May, which plummeted nearly 33%. Experts say the expiration of the new homebuyer tax credit is to blame for the sudden market softness.

Unfortunately, the market could get worse and prices could fall further, says Richard Suttmeier of ValuEngine.com. High unemployment and struggling community banks are two main causes. Saddled with bad housing and construction loans, local banks will continue to restrict lending.Plus, the failure of the Obama administration’s mortgage modification program means a steady flow of short sales. “People are going to be surprised when they see there have been short sales,” which negatively impact appraisals in the local community, says Suttmeier.How low can prices go?Using the S&P/Case-Shiller index as his guide, Suttmeier suggests homes across the country could lose half their value. “If it gets back, like stocks, back to the 1999-2000 levels, that’s another 50% down in home prices,” he says.

The stock market continued its sell-off Thursday as investors await Friday’s June unemployment report. The consensus estimate among economists is for a loss of at least 100,000 jobs and the unemployment rate to inch up to 9.8%.The jobs data we have already received this week also doesn’t suggest positive news. This week’s initial jobless claims were worse than expected, growing by 13,000 to 472,000. The four-week moving average is now 466,500. That’s well above normal levels, even during a recession. “350,00 is the recessionary threshold,” says ValuEngine.com’s Richard Suttmeier.The private sector is still not creating enough jobs to make a dent. Wednesday’s ADP report counted a disappointing 13,000 new jobs in the private sector in June. Remember, the government’s data only showed 41,000 new private sector jobs in May.The poor job market is proof the economy remains in a prolonged recession, says Suttmeier, noting that in December 2007, when the recession began, the unemployment rate was below 5%. “Forget the double dip, we’re not out of the first dip, based on that statistic alone.”There is one shred of silver lining, at least when it comes to stocks, Suttmeier tells Aaron in this clip. “The market reaction to the negative side has already occurred this week, so you may get a relief rally,” even if the jobs data is weak.

President Obama is having a rough go of things lately. As noted here last week, for the first time in his presidency, more Americans disapprove of Obama (48%) than approve of him (45%), according to the latest WSJ/NBC poll. And 62% say the country is headed in the wrong direction.“The American people are right,” says Howard Davidowitz of Davidowitz & Co. A critic of Obama’s, from the start, Davidowitz refers to him as the “worst” President of his lifetime, even worse than of Jimmy Carter, based on: * — The War in Afghanistan: Davidowitz doesn’t see the point. As far as he can tell, after 7 years, hundreds of billions spent, and thousands of U.S. lives lost, the Afghans still can’t defend against the Taliban. Plus, the Afghan government is stealing billions in aid from the U.S. The WSJ reports, $3 billion in U.S. aid has been loaded onto planes by corrupt officials and flown out of the Kabul airport since 2007. “If they can’t be trained, if they’re stealing all our money, all our soldiers are dying. I don’t understand how any of this is logical,” proclaims Davidowitz. * — Out of Control Spending: Davidowitz thinks Obama has wasted time and taxpayer money pushing ‘Obamacare’ into law at a time when the debt-to-GDP ratio is expected to hit 62% by year’s end. “We’re going broke because of Medicare, Medicaid and everything else. He added another benefit, health-care. Can you explain that to me?” * — BP Oil Spill: “It could destroy the country,” he says. Davidowitz fears the continued loss of hundreds of thousands of barrels of oil per day will drive gas prices higher, further choking and already struggling consumer. Meanwhile, he questions why the President waited 50 days to contact BP executives. Davidowitz recognizes Obama was handed a difficult hand upon entering office, and admits the political system is dysfunctional. Actually, in the many times Davidowitz has appeared on Tech Ticker he’s rarely had a nice thing to say about any politician, regardless of party. What he’d like to see is a return to fiscal responsibility, lacking these days. “Ross Perot did a huge service to this country when he ran because all he talked about was the budget and what was going on and it forced Clinton to deal with it,” Davidowitz says.

Howard Davidowitz is a bear on America. If you’ve watched any of the recent clips, you know he’s negative on stocks, the economy and the political system. (If you haven’t seen them, check the links below.)Much of Davidowitz’s frustrations stem from the bailout of our financial system. “If a bank is bad, you let it go broke,” he says. “The bondholders lose their money, because they should. The stockholders lose their money, because they should. Lots of people get fired job, because they should. That’s the solution to the problem.”In the 1980s, Davidowitz’s firm worked on the restructuring of then struggling retailer Toys “R” Us. “We kept the good, we cut the bad. That’s how restructuring works,” he says. The national retail chain was cut down to 13 stores, but was kept alive. Today, the company is preparing for an IPO, five years after private equity giant KKR purchased the company for $6.6 billion. Again, Davidowitz believes the same measures should have been taken with the banks. Sure, bankruptcy is a painful solution in the short-term, but he believes the government’s rescue of some of our biggest financial institutions has had, and will continue to have, catastrophic economic consequences. As economist and Carnegie Mellon professor Allan Meltzer once said: “Capitalism without failure is like religion without sin.”

The U.S. economy is in shambles and Americans will continue to see high unemployment and lower living standards in the years to come, Howard Davidowitz tells Henry and Aaron in the accompanying clip. Davidowitz lays much of the blame for the economy’s woes at the feet of the Obama administration, which he calls “the worst of my lifetime.”Obama “Mr. Mass Destruction”Davidowitz says that the key to Obama’s success is his ability to sell his policies to the public. He can confidently read from a teleprompter and appear competent and in control, when in reality, “it’s one big bag of empty words,” Davidowitz says of Obama’s messages.Davidowitz contends that the President’s spending, including the health-care bill, is creating massive deficits that will take the U.S. years to dig itself out of. “He is Mr. Mass Destruction,” Davidowitz says of Obama. “I mean he is a human destroyer. This guy has spent his way into oblivion and we don’t have a budget. He is surrounded by a bunch of complete incompetents, led by himself. “Housing GloomAs far as the actual economy goes, Davidowitz’s chief concern is the strained state of the housing market, from which the bad news continues to pour in. According to Davidowitz, Americans are facing an $8 trillion negative wealth effect from the bursting of the housing bubble.”We’re talking about some serious money here,” Davidowitz exclaims. “I mean this is a complete disaster and that’s why we are going to have a double dip. We’re guaranteed a double dip in housing.”Small Businesses and UnemploymentDavidowitz says that the job market is also in ruins, noting for every new job there are six applicants. As a result of the intense competition for positions, employers can offer lower wages. Young people entering the work force today can expect to make less money in their lifetime than previous generations. Considering the majority of new jobs are created by small businesses, Davidowitz argues that new regulations governing loans to small businesses are only making matters worse — both for the entrepreneurs and the millions of people out of work.”We have this insane new regulation,” Davidowitz says. “Community banks will not even be able to fill out the forms. They’ll pack up and quit. They’re already underwater. Commercial real estate is still terrible.” The Future a Massive StruggleAsked whether he thought the U.S. would experience another Great Depression, Davidowitz said the coming years will look more like Japan today vs. the U.S. in the 1930s.People will be making and spending less money and the nation as a whole will be dealing with the consequences of the deficit, he says. “We are in a struggle, day by day it’s ugly. At the core, when we look at our debt, we are going to have to deal with it.”A few months ago, while other analysts claimed that the economy would continue to follow a V-shaped recovery path, Davidowitz seemed out of step by insisting the nation’s problems were still dire. Regardless of what you think of his message or style, Davidowitz’s doom and gloom outlook now appears much more credible.

For the last several months, Princeton professor Paul Krugman has become increasingly agitated about what he feels is a disastrous mistake in the making — a sudden global obsession with “austerity” that will lead to spending cuts in many nations in Europe and, possibly, the United States.Krugman believes that this is exactly the same mistake we made in 1937, when the country was beginning to emerge from the Great Depression. A sudden focus on austerity in 1937, it is widely believed, halted four years of strong growth and plunged the country back into recession, sending the unemployment rate soaring again.In Krugman’s view, the world should keep spending now, to offset the pain of the recession and high unemployment–and then start cutting back as soon as the economy is robustly healthy again.Those concerned about the world’s massive debt and deficits, however, have seized control of the public debate, and are scaring the world’s governments into cutting back.Which fate is worse? It depends on your time frame.Cutting back on spending now would almost certainly make the economy worse, at least for the short run. Not cutting back on spending later, meanwhile (and Congress has shown no ability to curtail spending), will almost certainly keep us on a road to hell in a handbasket.The White House’s own budget projections show the deficit improving as a percent of GDP to about -4% by 2013. After that, however, even the White House doesn’t think things will get much better. After a few years of bumping along at about -4%, the deficit will begin to soar at the end of the decade. And thanks to the ballooning costs of Medicare, Medicaid, and Social Security–along with inflating interest payments from all the debt we’re accumulating–the White House expects the deficit to soar to a staggering -62% of GDP by 2085.What Krugman and his foes agree on is that that’s no way to run a country. And it’s time we finally faced up to that.In the meantime, we’ll continue to fight about what to do in the near-term. And Krugman thinks he has lost that war and we’re headed for another Depression.

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Economic Hurricanes Dead Ahead!

My name is “MoneyBob” - On 08-25-2007, I launched this Money Blog Site, to warn people about the coming Credit Crunch, to help educate people about Personal Finance, and to show them how to prosper in today’s economic challenges. I am terribly addicted to reading and understanding past and present economic history and trends, and how they can or will affect our personal financial future.